Robert Prechter’s Stock Market Warnings Underway?

Robert Prechter is the founder and editor of the Elliott Wave Financial Forecast and over the past 40 years or so has earned a reputation as a premier financial analyst. One of Robert’s most famous forecasts was his warning in 1987 that a stock market crash would soon take place. Of course, he was right and the market lost about 22% of its value in just a few days before rebounding.

Less than two weeks ago, Robert Prechter issued a rare emergency warning that the stock market was setting up for what he calls a super cycle crash. According to Prechter, super cycle crashes are rare events and the possibility that one could occur in 2010 must be taken very seriously. In a super cycle crash the direction of the market reverses in a most violent and severe manner. As is usually the case with any reversal in the stock market, the reversal takes place without warning and occurs when most stock market analysts and traders are at their most bullish and complacent.

Over the last two days the market has reversed from the high reached since the March 2009 low and quickly shed over 300 points on the Dow Jones industrial averages. The sudden losses in stocks have been accompanied by a surge in the strength of the US dollar, a fast drop in gold of over $40 an ounce, silver selling off by over one dollar per ounce, and a general rout in the price of commodities.

Robert Prechter has not only warned about an impending super cycle reversal in the stock market, but also about an intense long term deflationary wave that would affect not only stocks and commodities but all sorts of physical products, such as housing and commercial real estate.

While it is still too early to tell if the bear market rally in the stock market has been completed and a new severe down leg is getting under way, the price action of the last two trading days certainly suggest that at a minimum a long anticipated correction is underway. Should the move be merely a correction I would expect that the down move from the recent high would be on the order of 10 to 20%. Should the sudden drop be the beginning of Robert Prechter’s super cycle price 2010 will be a very rough year in the stock market indeed.

The next few trading days should give us a very good idea as to just how severe the drop may be. It is interesting that according to Robert Prechter’s technical indicators the stock market was ready for a severe sell-off just as president Obama felt that he was forced to play to the populist crowd due to the shocking results of the Massachusetts Senate seat election. He quickly decided to take a tougher stance against the big banks and their speculative trading practices. President Obama even brought Paul Volker out of the shadows to announce that there would be new rules and regulations designed to curb the speculative trading activities of banks.

Paul Volker, the chairman of the Federal Reserve Bank during president Jimmy Carter’s administration, is widely regarded as the man who broke the inflationary spiral of the late 1970s and early 1980s by raising interest rates. Paul Volker has been pushing for tougher regulations on the banks for some time but apparently was outgunned, until very recently, by Larry Summers and Timothy Geithner, who seem to be the best of friends with the banksters. It would be ironic, indeed, if new tough banking regulations proposed by president Obama, as suggested by Paul Volker, are the trigger for a super cycle stock market crash.

Putting the brakes to the bankers disgraceful and immoral activities may morally be the correct thing to do, and will certainly play well to disgusted and angry taxpayers, but a sharp drop in the stock market will further damage the prospects for an economic recovery, which will lead to even more frustration and anger by the American taxpayer. Really, there is no painless way out of the economic dilemma that several administrations, going back to at least president Reagan, have created for the United States of America.

Stay tuned to see if Robert Prechter is correct about a bearish rare super cycle kicking in. If he is correct, we won’t have long to wait. A super cycle move down will be severe enough to get our full attention.